Strategic Trading and Trade Reporting by Corporate Insiders

Betzer, André; Gider, Jasmin; Metzger, Daniel; Theissen, Erik

doi:10.2139/ssrn.1342461

Cited by 3 publications

(2 citation statements)

References 14 publications

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“…Klinge et al (2005) take event clustering into account and use non-overlapping observations. Dymke and Walter (2006) investigate the exploitation of private information by insiders, and Betzer and Theissen (2007a) research the relationship between excess returns and reporting delay.…”

mentioning

confidence: 99%

Market Efficiency Reloaded: Why Insider Trades do not Reveal Exploitable Information

Dickgiesser

Kaserer

2010

German Economic Review

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Insider trading studies related to the German market have emphasized that outside investors may earn excess returns by mimicking the transactions of corporate directors. Such a result, provided that it holds, would constitute a serious violation of the efficient market hypothesis. The results presented in this paper, though, show that this anomaly is mainly caused by a subset of stocks with high arbitrage risk as measured by their idiosyncratic volatility. This restrains arbitrageurs from engaging in otherwise profitable and price-correcting trades. As arbitrage risk is positively related to a stock's bid/ask-spread, we show that the information conveyed by insider trades cannot be exploited in terms of generating abnormal returns once these transaction costs are taken into account. We conclude that the market's under-reaction to reported insider trades can mainly be explained by the cost associated with risky arbitrage. Our findings provide evidence that the German stock market is efficient with respect to insider trades in the sense that prices reflect publicly available information to the point where the marginal benefit of acting on information exceeds marginal costs.JEL Classification: G11, G14

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confidence: 99%

Market Efficiency Reloaded: Why Insider Trades do not Reveal Exploitable Information

Dickgiesser

Kaserer

2010

German Economic Review

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“…Carter, Mansi, and Reeb () find that the market response to insider purchases is increasing in the reporting delay. In contrast, Betzer and Theissen () and Betzer et al () find no association between subsequent abnormal returns and the timeliness of reporting insider trades. However, evidence in Cheng, Nagar, and Rajan () suggests that insiders are more likely to trade on private information when disclosure of the trade is delayed.…”

Section: Motivation and Relevant Literaturementioning

confidence: 90%

The Market Response to Insider Sales of Restricted Stock Versus Unrestricted Stock

Franzen

Urcan

et al. 2014

J of Financial Research

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Insiders holding both restricted and unrestricted stock must decide which type of equity to trade. We investigate the relation between this choice and the market response to insider sales. If insiders choose restricted stock, the sale must be preannounced, but if they choose unrestricted stock, the sale is disclosed after the sale occurs. Preannounced trades are less likely to reflect informed trades. Consistent with this, in the pre-Sarbanes-Oxley (SOX) period, we find a more negative market response to unrestricted stock sales than preannounced restricted stock sales. The result does not hold for our post-SOX period when reporting times were accelerated. Our results suggest researchers who examine data over the pre-SOX period should consider the effect of restricted stock sales in tests of informed insider trading.

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Unreported Insider Trades: Indicators of Future Earnings and Forecast Error

Chang

Watson

2014

SSRN Journal

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Strategic Trading and Trade Reporting by Corporate Insiders

Cited by 3 publications

References 14 publications

Market Efficiency Reloaded: Why Insider Trades do not Reveal Exploitable Information

Market Efficiency Reloaded: Why Insider Trades do not Reveal Exploitable Information

The Market Response to Insider Sales of Restricted Stock Versus Unrestricted Stock

Unreported Insider Trades: Indicators of Future Earnings and Forecast Error

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